You are here

currency

On 18 September 2014, Scotland held a referendum on the question: Should Scotland be an independent country? This is a most unusual event in modern democracies and engaged the political class, civil society, and the general public to an unprecedented degree, leading to an 85 per cent turnout in the final vote. This was an occasion to debate not just the narrow constitutional issue but the future of the nation, including the economy, social welfare, defence and security, and Scotland's place in Europe and the world.

Many people have interpreted Gordon Brown’s comments prior to the referendum, as well as the so called “Vow” made in the Daily Record, as some commitment so “Devo Max”. My submission to The Smith Commission on further devolution for Scotland assumes that we are indeed aiming for the maximum level of devolution possible, and asks where this must fall short of the common understanding of Devo Max.

The debate over which currency an independent Scotland might use appears to have reached an impasse. The Scottish Government has stated that an independent Scotland would use sterling, and the UK Government (and the official opposition) has said unequivocally it would not participate in a formal currency union. Based on both positions, the most likely outcome seems to be that an independent Scotland would use sterling, but in an informal currency union. This is widely known as ‘dollarization’

If an independent Scotland chooses an informal currency union (called ‘dollarization’ or 'sterlingization') as Plan B, its financial institutions cannot be sure they will have access to emergency liquidity in the next financial crisis. This is likely to have important consequences for Scotland’s financial sector, and therefore its capacity to export financial services, its new balance of payments and general economic prosperity.

It is clear talking to voters around Scotland that they have real difficulties in putting the claims of both sides in the referendum debate into perspective. Those claims are often very different and generally contradictory. To mark the countdown as we hit 100 days before the referendum, we launch the first part of our response to this in the form of our Guide to the Issues.

Guest blogger Ronald MacDonald of the University of Glasgow examines Scotland's currency options.

The recent decision by all of the major unionist parties to rule out an independent Scotland participating in a sterling monetary union has created much political heat. So much so, that there is a danger that the light of the underlying economics will be extinguished in the maelstrom. As an economist, and a specialist in currency regimes, I think it is wise to return to the basic economics of this issue lest some costly mistakes are made for both Scotland and the rest of the UK.

Pages

Latest blogs

The first stage deal reached between the UK and the EU27 is an important staging post, says Kirsty Huges, but any suggestions that this opens the path to an easy future relationship are wide of the mark.

The current compromise on the border issue between Northern Ireland and the Republic relies on a subsequent technocratic fix, which, says Michael Keating, provides ample material for arguments in the course of the next round of negotiations.

Richard Parry reflects on the first-stage agreement between the UK and EU that defuses political of tension but has little comfort for the proponents of Brexit and leaves all to play for in the territorial politics of Britain and Ireland.

The fundamental issue with Clause 11 of the EU (Withdrawal) Bill, which allows the UK parliament and government to retain competence in areas of devolved responsibility, is one of trust, says Nicola McEwen.